Gold Correction

April 1, 2008

As is typically the case when a new psychological level is reached and breached, there’s a backing off, taking of profits, and a consolidation. So too with gold. Gold shot through the $1,000 level and has been backing down in wild gyrations for the past 2-3 weeks, barely staying above $900 after today’s $20+ drop.

Some are saying that the metal has topped out; however, if you factor in for inflation, gold would have to go over $2,000 an ounce to equal it’s 1980′s high. Having said that it doesn’t mean that it will; however, the basic fundamnetal factors that are good for gold for the near and mid term are promising- if you hold gold. Then there’s just the basic parabolic rise of gold that says there needs to be a correction.

Inflation is going to increase if not double. Uncertainty about how serioues the financial market will shake out have people worried. And then we have the terrorist issue still with us. All of those factors bode well for rising gold prices. On the other hand though as they say.

The US economy appears to be sinking into actual deflation which isn’t a good sign for any commodity. I have no doubt that the Fed will push the Fed Funds rate down to zero as per Japan. But that didn’t help Japan either. Home foreclosures will continue regardless of how low interest rates go. Rates are already below the inflation rate. What we are watching today is a fierce and unrelenting battle by the Fed and Europe’s central banks to avoid a collapse of the global banking system.

To say the battle is deadly serious is an understatement. All of which basically says anything could happen; however one thing we know for sure. While many companies go bankrupt and stocks drop out and off the market, gold never is worth zero.

Written by Ernie · Filed Under Gold News